Silver's 7% Drop: A Case of "Sell the News" After Tariff Hopes Faded

The market's reaction to the US policy decision was a textbook "sell the news" event. Silver, having rallied to record highs, sold off sharply on Thursday as the immediate tariff threat receded. The metal fell as much as 7.3% and more than 7% at one point, a drop that erased much of its recent momentum. This move followed a fresh record price above $93.75 per Troy ounce earlier in the week. The setup was clear: a significant policy risk premium had been priced into the metal, driving it to those peaks.

The core dynamic was a repricing of that risk. For months, the looming threat of tariffs on critical minerals had acted as a powerful tailwind, pulling physical silver into US warehouses and fueling a historic squeeze. This created a structural premium. When President Trump announced he would instead pursue bilateral agreements and set price floors instead of imposing tariffs, that near-term disruption risk was removed. The market had bet heavily on that threat materializing; once it didn't, the premium collapsed, triggering the sharp drop.

Yet the reaction also highlights what remains priced in. Despite the steep correction, silver prices have since recovered much of the ground lost, and the metal remains more than 25% higher year-to-date. This shows the underlying bullish drivers-strong industrial demand, a structural supply deficit, and continued investment flows-are still intact. The tariff decision eased a specific overhang, but it didn't change the fundamental story. The expectation gap was between the market's fear of a disruptive policy and the reality of a delayed, negotiated approach. The drop was the market selling that fear; the recovery and sustained year-to-date gains show the underlying story is still being bought.

Beyond the Headline: Repricing the Policy Risk Premium

The market's reaction to the tariff decision was a classic case of separating temporary noise from lasting fundamentals. The sharp initial drop, with silver falling as much as 7.3% from its peak, was the direct result of a major policy risk premium being removed. For months, the threat of disruptive tariffs had acted as a powerful tailwind, pulling physical silver into US warehouses and fueling a historic squeeze. That created a structural premium priced into the metal. When President Trump announced he would instead pursue bilateral agreements and set price floors, that near-term disruption risk was effectively deferred. The market had bet heavily on that threat materializing; once it didn't, the premium collapsed, triggering the sell-off.

Yet the subsequent partial recovery tells the real story. Silver prices have since clawed back much of the ground lost, and the metal remains more than 25% higher year-to-date. This isn't a sign of weakness; it's a signal that traders are repricing the market's structural drivers, not abandoning them. The decision to pursue negotiations and price floors reduced the immediate policy risk premium, but it did not alter the underlying supply-demand picture that had been building for years.

The core fundamentals remain firmly in place. Silver continues to face a structural supply deficit, with mine supply growth constrained because most production is a by-product of other metals. At the same time, robust industrial demand from clean energy and AI applications provides a powerful anchor for prices. The elevated physical flows into the US, which triggered the squeeze, are a symptom of this persistent deficit. The market is now recalibrating: it's selling the fear of a tariff-induced disruption, but it's still buying the story of a tight physical market and strong long-term demand. The expectation gap has narrowed on one front, but the fundamental story is still being priced in.

Catalysts and Risks: What's Priced In Next?

The dip has been partially retraced, but the market is now waiting for the next catalyst to determine if this is a buying opportunity or the start of a deeper correction. The immediate forward-looking event is the 180-day report from officials on negotiated supply agreements. This report, due in roughly six months, will reintroduce a major source of uncertainty. If the negotiations fail, President Trump has said he may take other measures, including tariffs or price floors, which could reignite the policy risk premium that just faded. The market is currently pricing in a successful negotiation, but the open-ended nature of the threat means this is a key overhang.

The primary risk is a failure of these talks leading to future tariffs. That would reset expectations sharply, potentially triggering another wave of profit-taking and a more sustained sell-off. A broader market shift away from risk-on commodities is another vulnerability. Silver's recent surge was fueled by speculative demand and safe-haven flows, which can reverse quickly if macro conditions change or if investors rotate into other assets. The metal's dual role as both a precious and industrial metal makes it particularly sensitive to shifts in both sentiment and economic growth.

On the supportive side, the structural fundamentals provide a floor. Silver flows remain elevated in the US, a sign of persistent physical tightness and a supply deficit that hasn't been solved by policy. Robust industrial demand from clean energy and electronics applications continues to anchor the story. These are the drivers that kept prices more than 25% higher year-to-date even after the tariff-driven drop. The market is now weighing these lasting fundamentals against the temporary policy risk.

Technically, the path of least resistance will hinge on key support levels. The price has found some stability near $90 per ounce, a level that will be critical to hold. A break below that could signal further weakness and a test of the lower end of the recent range. For now, the setup is one of high sensitivity: the market has repriced the immediate tariff threat, but it is still pricing in a successful negotiation and the enduring strength of physical supply and industrial demand. The coming months will test which narrative gains more weight.